M&A & Merger Models
Target net income is 100, acquirer pays 1,500 in an all-debt deal at 5% pre-tax interest, tax rate 25%. Roughly accretive or dilutive on the target side alone?
Model answer
Compute the incremental after-tax pieces. New interest = 1,500 x 5% = 75 pretax, after-tax = 75 x (1 - 0.25) = 56.25. Target earnings added = 100 (assume already after-tax). Net contribution to pro…
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